The Moderating Effect of Design-Engineering Capability on the Relationship between Firms' Innovation Activity and Financial Performance

The integration of design and technology innovations in the new product development (NPD) process is critical for successful product development and market success. Technology innovation serves as the backbone of the development side of NPD, empowering products with the necessary functionalities and capabilities. Design innovation, on the other hand, is instrumental in aligning the products with customer needs and preferences, serving as a key driver on the market side of NPD. The present study aims to examine the effects of firms' capability in effectively integrating design and technology throughout the NPD process, which we refer to as design-engineering capability, on financial performance, as well as its moderating effect on the relationship between firms' innovation activity and financial performance. Our main hypothesis is that firms' design-engineering capability positively moderates the effects of innovation activities on financial performance. Using patent data for 1,659 US-headquartered publicly-traded firms from 1980 to 2015, the results of panel generalized least square (GLS) regressions confirm our hypotheses on the direct effect of design-engineering capability on firm performance and its moderating effect on the relationship between innovation activity and firm performance, highlighting the importance of having a strong integration of design and technology expertise within the organization.